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A more perfect union

LiveMint 12-03-2017Vivek Dehejia

In India we often express legitimate concern about threats to the integrity of the Union, as relating, for instance, to Maoist or regional insurgencies. But think for a moment that burgeoning economic, social and other disparities among sub-national regions in large, federal states have historically fed secessionist movements at least as much as ideologically or religiously inspired insurgencies. Ought this to be of concern to us in India? I think the answer may be yes.

Take what is perhaps the most well-studied and well-known secessionist movement in any major democracy in modern times, the US Civil War (1861- 65). Popular histories of the conflict, the bloodiest by far in US history, far surpassing both world wars, focus on slavery and secession as the key wedges between the northern (free) and southern (slave) states. While this is true, the debates about the legal standing of the institution of slavery, both within the Union and within new territories that were being absorbed in the Union’s westward march, as well as the legality of secession by a state from the Union, were but the culmination of a long period of divergence, economic and otherwise, between the northern and southern states.

I can, at best, offer a potted history of the necessary background. In this, it is useful to pinpoint the conflict over the national tariff in the 1820s and 1830s, arising from the divergent economic interests of the north and south. In short, import-competing manufacturing interests in the north favoured a protective tariff, while slave-driven plantation interests in the south, which benefited from cheap imports and access to the export market, opposed it. The conflict culminated in the “nullification” crisis of 1832, in which South Carolina adopted an ordinance of nullification, which declared unconstitutional and unenforceable the federally imposed tariffs of 1828 and 1832, declaring that, if the Union attempted to enforce these, the state was prepared to secede.

You can see here that the seeds of the Civil War had not only been sown, but had begun to sprout. In a sense, the secession crisis of January 1861, in which seven southern states (joined later by four others) seceded from the Union to form the Confederate States of America, is but a footnote to the earlier nullification crisis.

What is noteworthy is that, at its core, the conflict between the Union and the Confederacy was rooted in economic conflict, or, to be more precise, conflict over economic policy—whether the national tariff, or whether to admit new states as slave or as wage labour states, the latter crucially determining the balance of power in the Senate.

Furthermore, as the conflict became increasingly intense, it brought to the fore a contentious legal debate on whether it was constitutionally permissible for a disaffected state to secede legally from the Union. That constitutional question became moot and was settled in the US, not in a court of law, but on the battlefield, by the victorious Union armies of President Abraham Lincoln seeing off the Confederate armies of President Jefferson Davis. The political reality of an indissoluble Union was eventually given judicial sanction, when in Texas v. White (1869), the Supreme Court declared unilateral secession by any state to be unconstitutional.

In India, the latter question has never been legally contentious. With our very different history, inheriting British-created presidencies and princely states, the constituent assembly, and the Constitution its members crafted, ruled out secession. Furthermore, unlike in the US, our Constitution does not guarantee the territorial integrity of member states of the Union, allowing for existing states to be split into new states if linguistic, economic, administrative or certain other considerations warranted. By contrast, in the US, despite the defeat of southern secessionists, the territorial integrity of member states of the Union has always remained sacrosanct, including of the defeated Confederacy.

But on the question of widening economic divergence among states of the Union, present-day India is not as different from the antebellum US as we might comfort ourselves into believing.

As Praveen Chakravarty and I have documented, and this year’s Economic Survey confirms, economic disparity between wealthy states of the south and west and poor states of the north and east is skyrocketing. With diverging economic outcomes may follow the desire for state-specific economic policies.

Yet, India is moving in the opposite direction: with increasing centralization of economic policy, as crystallized, for instance, in the goods and services tax (GST).

With the imminent advent of the GST, a large element of states’ fiscal autonomy, protected under the Indian Constitution, will be voluntarily ceded by states to the Union.

The hope is that by knitting India together into a single market, the GST will help lift all boats, and thus stem the tide of widening regional disparity. Yet the very opposite could happen, with agglomeration economies driving investment to the already prosperous peninsula and leaving the hinterland even further behind.

It cost the US a bloody civil war to bind together by main force the bonds of a fraying union. Now, there’s a cautionary tale.

Every fortnight, In The Margins explores the intersection of economics, politics and public policy to help cast light on current affairs. Read Vivek’s Mint columns at www.livemint.com/vivekdehejia